Daily analysis 29.04.2015

Awaiting weaker data from the USA and a mild outcome of the Fed meeting support the dollar sell-out. The Riksbank didn't lower the interest rates. The zloty remains stable against the euro. The franc is getting closer to going below 3.80 PLN. Osiatynski on the currency exchange rate for the 'WSJ'.

Most important macro data (CET). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

14.30 CET: GDP for the first quarters from the USA (survey: +1.0%, seasonally adjusted, annualised).

20.00 CET: The statement from the April Fed meeting.

Weakening dollar

The American currency continues to depreciate, which started last week. It is caused by worse macro data from over the ocean and the fact that the weaker data can make the Fed prolong the policy of zero percent interest rates. This is a negative sign for the greenback.

The investors are expecting some hints to come along with today's GDP and the Fed statement. The economists' consensus is expecting the GDP to increase by 1% in 2015 Q1 (seasonally adjusted, annualised). Apart from the headline reading itself, the data components are also important. To what extent was the growth influenced by consumption and investments, and how the GDP was disturbed by e.g. foreign trade, government expenses and supplies changes? The connection of the main reading and detailed data should transfer to the dollar pricing relatively quickly.

The Fed statement after the April meeting should be even more important than the GDP. As this month there are no conferences or macro projections, the attention in its whole will be paid to the statement. The most important issue is the FOMC opinion on the economic condition of the country, the strength of the labor market and the influence of the strong dollar on an inflation perspective or economic growth. Concerns regarding these issues should maintain the weak readings of the American currency.

Riksbank won't change the interest rates

Somewhat against the economists' expectations, the Swedish monetary authority decided to leave the interest rates on the level of -0.25% (anticipations around -0.35%). The Swedish krona gained in relation to the euro by about 1% right after the announcement of this decision. However, it is worth noting that Riksbank has increased the assets purchase by 40-50 billion SEK, which caused the central bank to have about 90 billion SEK in its wallet by September.

Additionally, the anticipated interest rates for 2017 Q2 were significantly reduced (from 0.83% to 0.24%). Riksbank also emphasised that it can reduce the interest rates, if there is a need to do so or increase the bonds purchase.

The SEK appreciation after the decision isn't very surprising as the interest rates weren't cut. There is, however, little chance for further significant krona strengthening (below 9.00 on EUR/SEK), because the monetary authority in Stockholm can quite quickly intervene on the market, for example by intensifying the purchase of assets.

Foreign markets in a few sentences

The worse the data from the USA is, the less beneficial their composition becomes, the bigger chances for further dollar weakening. The key statement for the greenback should be the announcement after the Fed meeting. The more concerns regarding the shape of the economy, the labor market strength and the negative influence of the dollar strength to the return of the inflation to the goal, the bigger chances for further EUR/USD gains. However, in case of the neutral statement one can expect the strengthening of the American currency as the prices already include the relatively softened FOMC statement. However, the first scenario is a bit more likely.

The zloty also waits for the Fed

The domestic currency weakened in relation to the euro before the Fed meeting. A similar movement can be observed on the forint. This could mean that the market participants from the emerging markets are concerned about the less dovish than expected Fed statement causing a significant weakening of the EM currencies. However, these concerns are unlikely to come true and the EUR/PLN will probably return below 4.00 in the coming days.

The CHF/PLN, on the other hand, looks relatively good. The lowering concerns regarding Greece and the speculations about the possible SNB intervention cause the EUR/CHF to return above 1.0500. Thanks to this, within the next couple of days, the franc can go below 3.80.

In yesterdays interview for the 'Wall Street Journal', professor Osiatynski, much like the other Monetary Policy Council (RPP) members, ignores the possibility of the capital inflow from the eurozone, which would strengthen the zloty against the common currency. He stated that 'Poland has no significant rule in the basket of currencies from the emerging markets'. Osiatynski also thinks that the regional players have no access to the capital sufficient to cause a significant appreciative trend. 'Even when looking at the recent changes on the zloty regarding range, as well as the effect, they are rather small' - said the RPP member.

The general marginalization of the 5% appreciation of the zloty against the euro is quite a surprising approach, especially given that both the emerging economies and those already developed (e.g. Sweden) are very cautious, so that their currencies do not gain against the euro, that is, their main export market. Unless, there is some strategy of withholding 'ammunition' for the moment when the appreciation is hard to be questioned, e.g. going below 3.80.

Anticipated levels of PLN according to the EUR/USD rate:

Range EUR/USD

1.0950-1.1050

1.0850-1.0950

1.1050-1.1150

Range EUR/PLN

4.0000-4.0400

4.0000-4.0400

4.0000-4.0400

Range USD/PLN

3.6400-3.6800

3.6700-3.7100

3.6100-3.6500

Range CHF/PLN

3.8000-3.8400

3.8000-3.8400

3.8000-3.8400

Anticipated GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD

1.5150-1.5250

1.5050-1.5150

1.5250-1.5350

Range GBP/PLN

5.5600-5.6000

5.5200-5.5600

5.6000-5.6400

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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